Feb 18 (Reuters) - The 209,000-barrel-per-day Aruba refinery, operated by a unit of U.S. Citgo Petroleum, is putting a $685 million refurbishment on hold due to sanctions imposed on Venezuela by the United States last month, the company said on Monday.

Work on reopening and converting the idled refinery into an oil upgrader, approved in 2016 by the Caribbean island's government, will be halted by Feb. 27, Citgo Aruba said in a statement.

"The second phase of the upgrade project is on hold as a consequence of U.S. sanctions on PDVSA," the release said.

Citgo, owned by Venezuelan state oil company PDVSA, last Friday laid off a portion of the 300 workers hired for the modernizing project. Remaining employees directly involved in the refurbishment are expected to work until the end of the month.

U.S. President Donald Trump's administration on Jan. 28 imposed the toughest sanctions yet on PDVSA, barring its U.S. customers from transferring sale proceeds to the state-run firm until a new transition government being formed by Congress head and opposition leader Juan Guaido sets up new bank accounts.

The facility's management and the island's government plan to continue seeking solutions to avoid having to completely halt the project, Citgo Aruba said. The modernization, authorized in a 15-year lease contract, has faced delays in recent years due to lack of funding and previous U.S. sanctions on PDVSA.

Talks for withdrawing the Aruba refinery from the new round of sanctions have been held in recent weeks, according to the Aruba government. But the U.S. Office of Foreign Assets Control has so far determined that the project ultimately benefits PDVSA, the release said. (Reporting by Sailu Urribarri in Jacksonville Writing by Marianna Parraga; Editing by Tom Brown)